By starting the new year, Bitcoin price is changing a lot and increasing day by day, we are expecting to see this numbers to reach 200,000$ in 2021.
There are many people that still believe Bitcoin is nothing but a bubble which will pop up soon enough. But as we can see, not only it is not going pop up, but also it is going to increase more and more. It is hard to understand for these people that Bitcoin has increased 711 percent over the past year.
The Bitcoin protocol has programmatic supply issuance, so the price of Bitcoin is a function of increasing or diminishing demand to hold the asset, there is no diversity on the supply direction. This is a very important breakthrough in monetary economics, and is a concept that is ill understood even by so-called “economic experts.”
Every four years, with every 210,000 blocks ,the Bitcoin protocol faces something that is called “Halving” in which the new supply of bitcoin come into circulation is reduced by 50 percent. This incident makes a disequilibrium in the supply and demand dynamics that the market had adjusted to during the previous 210,000 blocks. While the Halving incidents are clear that they happen the future, it is not possible to “price in” a supply shock In relation to a monetary asset.
An anonymous twitter user, released a model In March 2019, that quantified the relationship between the relative scarcity of bitcoin and the price. This user found out that there was quite a significant correlation between the stock-to-flow ratio of bitcoin, and the price action of the asset. While we cannot say that the price action is directly related to the Halving and the stock-to-flow relationship, it is so clear that this is simply not a statistical anomaly or happening just by chance.
This model predicts a rise to $100,000-plus in 2021, we expect this to be even more. Like what happened in the previous Halving cycles, we saw that this phenomenon worked like a catalyst, the price of Bitcoin increased and caused a new wave of adopters and users. This cycle is a reflexive cycle which causes having new adopters come into a competing space to store bitcoin, which increases unit price, which increases media attention and miner profitability, which increases network security and gives the asset more perceived legitimacy. This reflexing cycle is happening for twelve years now, it is not be wise if you stop betting on it now.
What is basically different during this Halving cycle is the monetary degradation that is happening in the old financial system. Major global central banks, mainly the Federal Reserve and European Central Bank (ECB) have got themselves into a corner. Following decades of interest rate reductions to stimulate markets, rates are stuck at the zero lower bound, leaving them without a major tool in their tool box.
Quantitative easing on a scale that was formerly incomprehensible, shown by a parabolic rise in the balance sheets of the central banks. Without the capability of lowering the interest rates any further, the act of buying bonds and securitized debt with newly “printed” cash, has been the only response. This act has provided a privilege to global credit and stock markets, and has served as complete rocket fuel for the price of bitcoin. Recent manifesto from both the Fed and ECB has shown that they are committed to continue easing.
In the last months of 2020 and the first months of 2021, corporate and institutional interest in bitcoin as a monetary asset has burst. The insurance industry, corporate treasurers, Wall Street banks and sovereign wealth funds are all preparing to enter this space massively. This motion of new request from huge capital allocators will have to fit through a pinhole of present supply, which will cause an increase in bitcoin price, as bitcoin go through the transition from a mainly individual/retail-driven asset, into a worldwide monetary asset with geopolitical concepts. A $200,000 bitcoin would regard as identical to about a $3.7 trillion dollar asset, still just a tiny part of the current market value of gold, its closest monetary rival.
While nothing in this world is assurance, it is absolutely a good guess that politicians and central bankers will continue to work and follow their basic motivation of “printing money,” as well as there is an extremely strong possibility, that the Bitcoin network will continue to absorb, additional adopters, as more rational individuals in the world, understand that a system of rules is recommended to a system of rulers. Therefore, with all of these factors and elements affecting this cycle, $200,000 bitcoin is not only a tiny chance of happening, but also it is more likely happening.